What is the Significance of a Reserve Fund?

Your condominium corporation reserve fund should be the most important financial issue that concerns  your Board. The status of the reserve fund can drastically influence the value of your investment in the condominium corporation. Financial planning for your reserve fund should be a main focal point for your property manager. They should be able to offer guidance and assistance when dealing with all financial issues, and your Board should have confidence in their ability to protect your investment.

Every condominium corporation has a reserve fund for one main reason: to set aside money in a consistent and controlled manner in order to fund future major repair & replacement projects to the common property. Such projects are set forth in the reserve fund study which is to be done at a minimum of every 5 years. It outlines the expected projects and their costs for the next 25 years, along with a forecasted budget of money needed in the reserve to fund these projects. This, in turn allows the Board to create a plan outlining the specifics of how the reserve will be funded to accommodate these future expenses.

All attempts should be made to avoid using the reserve fund to cover expenses for capital improvements that are not included in the reserve plan. If, for any reason, the Board decides they would like to use the reserve fund for a project that is not included in the plan, they must pass a special resolution with 75% approval amongst the owners. On top of this, the Alberta Condominium Act  states that your reserve fund is used for unplanned projects, the remaining balance of the fund must be sufficient to cover the upcoming costs mentioned in the reserve study. In instances where using the reserve fund for unexpected expenses is not viable, a special assessment will be done and costs passed onto the owners.

All owners of a condominium corporation should have access to the most recent reserve fund study and the corporation's current financial statements. A comparison between both of these documents will allow an owner to assess whether or not the reserve fund is within an acceptable valuation.

At a final glance, a reserve fund that is below the recommended levels mentioned in the reserve fund study puts the condominium corporation in a very vulnerable position and will undoubtedly negatively affect the value of the property. Comparatively a reserve fund that is in line with the reserve fund study or has a surplus, maximizes return potential of the investment for the owners.